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Treasury Policy
Purpose:
  1. The purpose of this Treasury Policy is to provide a framework and policy guideline within which the University Group manages its treasury function and risks to financial market variables.
  2. The University Group is exposed to treasury-related risks arising from debt raising, foreign exchange, the investment of surplus funds and associated cash management activities. The safeguarding of the University’s financial resources must be achieved with respect to the principles of public accountability and compliance with relevant legislation, including those established under the University Act.
  3. The core objectives of the University’s treasury function are to:
    • Conduct treasury management in a risk averse and non-speculative manner, in accordance with the overall Treasury Policy and for an outcome that optimises the University’s financial resources.
    • Operate in an effective manner and maintain the necessary controls to prevent unauthorised transactions.
    • Ensure that business and long term strategic plans are supported with a viable financial plan that both details how these plans will be financed and enables accurate monitoring of progress towards these financial objectives.
    • Maintain a level of liquidity to meet both planned and unforeseen cash requirements so as to ensure the ongoing liquidity and funding of the University.
    • Identify, control and manage interest rate and foreign exchange exposures within the parameters of predetermined control limits in order to protect the University’s assets from significant adverse movements.
    • Maintain efficient cash management processes, forecasts and reporting.
    • Provide an appropriate reporting package to senior management, the Finance Committee and Council. This involves reporting policy compliance and identification of exposure position. Any breaches of Treasury Policy will be reported to Council, and continue to be reported for as long as the breach persists.
    • The Treasury Policy is intended to evolve as the University’s business and structures change. A formal review process will be undertaken every two years, but a provision is made for alterations to the Treasury Policy to be implemented by specific approval by Council.
Principles:
INVESTMENT POLICY
  1. The University’s primary objectives when investing are for the protection of capital and meeting cash flow requirements. It is therefore essential investments are maintained at an appropriate level of liquidity to support required cash flow. While the maturity profile is governed to some extent by liquidity and cash management requirements, the objective is to avoid excessive re-pricing risk through having concentrations of maturities in a narrow time frame.
  2. The University recognises any investments that it holds should be of relatively low risk. It also recognises that lower risk generally means lower returns.
  3. In line with this conservative philosophy, the University Group’s investments are restricted to cash and fixed interest products. Finance Committee approval must be sought for other investments. These restrictions do not apply to UC Foundation investments, which fall under the UC Foundation Investment Policy. Whilst the UC Foundation is bound by the University Act, to help it achieve its monetary objectives it has the requirement from to time to engage in slightly different treasury management procedures from the mainstream University Group and as such has its own separate investment policy.
  4. The investment of surplus funds of the University Group (with the exception of the UC Foundation) will be subject to the following controls:
    • Investments are to be placed with approved counter parties only and all products must meet the credit rating requirements outlined in the Treasury Procedures.
    • To ensure investments are maintained at an appropriate level of liquidity to enable the provision of cash flow when required.
    • Subject to decisions of Council, if the University is operating as a net borrower, surplus funds are only permitted to be invested on a short term basis until the next opportunity to repay debt.
    • Financial market investments are restricted to the following, unless by specific approval of the Finance Committee:
      • At Call or Term Deposits with Australian registered banks or Authorised Deposit Institutions
      • Bank Bills
    • Unless approved by Council, where University Group investment funds on deposit exceed a materiality threshold of $10 million, no more than 50% of these investments will be held with any one counter party.
    • Investment of funds beyond 1 year shall not exceed 20% of the portfolio (excluding UC Foundation investments) and no investment shall have a maturity date exceeding 2 years.
BORROWING POLICY
  1. The University Group may borrow for two purposes:
    • General Purpose Debt: for working capital purposes and to enable the University to implement capital expenditure at an accelerated rate.
    • Specific Purpose Debt: to enable the University to construct, acquire or invest in an asset, the cash flows generated by which are expected to wholly or substantially service the associated debt.
  2. In either case, the University will borrow only if the resulting capital expenditure or investment contributes materially to achievement of the University’s strategic objectives.
  3. In accordance with the Financial Management Act 1996 (ACT) the University must obtain approval in writing from the ACT Treasurer prior to entering into any borrowings. The University must ensure all legislated requirements are met, including compliance with any terms and conditions of the borrowings specified by the ACT Treasurer.
Liquidity Risk Management
  1. The main objective of liquidity risk management is to ensure that the University has sufficient funds available to meet its financial obligations in a timely manner. It should also cater for unforeseen events which may curtail operating cash flows and cause pressure on the University’s liquidity.
  2. The CFO, Director Finance and Business Services will:
    • Ensure appropriate reporting mechanisms are maintained to show that at all times sufficient funds are immediately available, whether by withdrawing investments at call or drawing down from the University’s funding facilities, to meet its peak forecast cash flow obligations over a 12 month horizon.
    • Determine the appropriate “liquidity buffer” to accommodate potential variations in cash flow requirements from the forecasts and structure the University’s banking arrangements accordingly.
  3. The Finance Committee will review and recommend to Council the headroom limit annually and should consider both liquid investments and any undrawn bank borrowing facilities
Funding Risk Management
  1. Funding risk is the risk that the University is unable to renew borrowing facilities, or to receive a favourable outcome, due to market conditions at the time it seeks to refinance. The CFO, Director Finance and Business Services must renegotiate and endeavour to obtain a formal offer of a replacement facility(ies), at the latest, three months ahead of an existing facility maturity.
Interest Rate Risk Management
  1. Interest rate risk management has the objective of controlling the University’s exposure to movements in interest rates in order to:
    • Manage the total interest expense incurred by the University’s debt.
    • Manage variations in interest expense for the debt portfolio from year to year.
    • Maintain sufficient flexibility in its interest rate risk management profile to enable the University to respond to exceptional circumstances.
  2. The University will manage its exposure to interest rate risk on ongoing borrowings by identifying a core level of debt, applying the risk control limits explained in the following paragraph and considering the use of interest rate hedging structures. Core debt is defined as the portion of total debt that is unlikely to fluctuate as a result of seasonal fluctuation in business activities. It excludes specific project debt, as this may be structured on a case by case basis to best meet individual project requirements.
  3. The Finance Committee must determine the appropriate positioning between fixed rate and floating rate debt in order to manage the University’s exposure to adverse movements in interest rates. Once the University’s borrowing profile is established, it is expected that floating rate debt will not exceed 50% of the University’s core debt. This control will apply where the level of core debt exceeds $20 million.
Interest Rate Hedging
  1. Where floating rate debt exceeds 50% of core debt (or whatever proportion is deemed appropriate by the Finance Committee), the University may consider reducing its level of interest rate risk by hedging a portion of its floating rate borrowings. This could be achieved by transacting an interest rate swap to convert a portion of floating rate debt into a known fixed rate for a set period, or transacting a collar option to reduce the level of variability in interest costs.
  2. The Finance Committee must grant approval prior to entering into hedging instruments such as interest rate swaps or options (including caps, floors and collars).
  3. The CFO, Director Finance and Business Services must:
    • Determine and advise on the accounting implications before undertaking any derivative position. Mark-to-market accounting rules mean that swap hedging structures typically have a more preferable accounting treatment than option structures such as interest rate collars.
    • Ensure that bank borrowing levels do not fall below the level of any potential interest rate swap at any point in time which will avoid an over-hedged position which could have accounting implications.
    • Ensure that ISDA documentation is in place before the University enters into any swap or collar option hedges.
FOREIGN EXCHANGE POLICY
  1. Foreign exchange risk is the risk that the University will suffer financial loss due to adverse movements in foreign exchange rates thereby decreasing the value of assets or increasing the value of liabilities and payments.
  2. Wherever commercially practicable, the University conducts its business and seeks to have contracts denominated in Australian Dollars.
  3. The University incurs foreign exchange risk through:
    • Accounts payable invoices issued in foreign currency, including library subscription payments and capital expenditure.
    • Accounts receivable invoices raised in foreign currency, including invoices for research and overseas student sponsors.
    • Refunds to international students in certain circumstances.
  4. Where foreign currency payments and receipts are in the same foreign currency, the resulting ‘natural hedge’ means that only the net cash flow should be considered for hedging.
  5. This policy defines two distinct types of foreign currency risk faced by the University in its normal course of business.
    • Confirmed or committed foreign exchange exposure: known obligations of the University, being signed contracts to pay or receive an agreed amount at an agreed rate, as well as risks arising from firm orders with unknown exchange rates.
    • Forecast exposure: expected receipts or payments in foreign currency as based on the annual budget and subsequently the updated cash flow forecast.
  6. Committed foreign currency income or expenditure of AUD$200,000 or greater must be advised to the CFO, Director Finance and Business Services within 2 business days of the exposure arising.
  7. Foreign currency risks are to be managed by the CFO, Director Finance and Business Services in accordance with the procedures outlined in the Treasury Procedures.
Authorised Foreign Exchange Instruments
  1. Where considered necessary by the CFO, Director Finance and Business Services, the treasury function is permitted to undertake transactions with approved counter parties using only the following physical and derivative financial instruments to meet the policies set out in this document:
    • Forward exchange contracts; and
    • Other instruments as nominated by Finance Committee from time to time.
  2. Recommendations to Council for the approval of new instruments are to be supported by the agreement of Finance Committee. 
  3. All efforts should be made, prior to entering any derivative instrument, to ensure it meets the requirements of hedge accounting and if not, the University is satisfied with the potential accounting implications of having a non-effective hedge.
Responsibilities:
The responsibility for the management and control of the University Group’s treasury function and treasury risks is vested in the following:
  • Council
  • Finance Committee
  • Vice-Chancellor
  • Deputy Vice-Chancellor & Vice-President Finance and Infrastructure
  • CFO, Director Finance and Business Services
  • UC Foundation Investment Committee (refer to separate UC Foundation Investment Policy)
  • Management Boards of entities wholly owned by the University
Council
  • Approves, upon recommendations from the University Finance Committee:
    • The Treasury Policy and amendments to it;
    • All counterparties and funding facility agreements; and
    • Any requests to operate outside of the Treasury Policy.
  • Receives a formal, written report once a year through the University Finance Committee on the operation and performance of the Treasury function.
  • If requested, any additional reports / briefings.
  • Delegates to University management the appropriate transactional and reporting responsibilities in accordance with the Financial Delegations Policy.
Finance Committee
  • Monitors the activities, strategies and performance of treasury activities against established benchmarks.
  • In conjunction with the Deputy Vice-Chancellor & Vice-President Finance and Infrastructure, ensures the efficient operation of the University’s banking structure, processes and relationships and that financial transactions are conducted in the highest possible standards of ethics and honesty.
  • Reviews the Treasury Policy every two years and makes recommendations to Council with respect to the Treasury Policy, including debt strategy and any proposed changes to the permitted instruments, risk control limits, procedures and delegated authorities.
  • Ensures compliance with regulatory requirements.
Deputy Vice-Chancellor & Vice-President Finance and Infrastructure
  • Responsible for ensuring the prudent implementation of treasury strategy within Council-approved limits and in line with strategies agreed by Finance Committee.
  • Maintains liaison with relevant executives and Council to ensure potential future treasury risks and exposures are identified and managed on a timely basis.
CFO, Director Finance and Business Services
  • Responsible for the University’s day-to-day treasury function in accordance with this Treasury Policy and the Treasury Procedures.
  • Ensures the Treasury Procedures support the Treasury Policy
  • Identifies the profile of borrowing requirements on a 12 month basis in line with capital expenditure and cash flow plans as presented within the annual budget and planning processes each year.
  • Responsible for reporting to the Finance Committee and Council (minimum annually).
  • Ensures that rolling cash flow forecasts are generated.
Management Boards of entities wholly owned by the University
  • The entity complies with this Policy
  • Guidance is sought from the CFO, Director of Finance and Business Services prior to entering into any investment or borrowing arrangements.
Supporting Information:
The Treasury Policy is intended to evolve as the University’s business and structures change. A formal review process will be undertaken every two years, but a provision is made for alterations to the Treasury Policy to be implemented by specific approval by Council.
Related Documents
Definitions:
Terms Definitions
Authorised Deposit Institutions Corporations authorised under the Banking Act 1959 and under the regulation of the Australian Prudential Regulation Authority (APRA). These include banks, building societies and credit unions.
Core Debt The portion of total debt that is unlikely to fluctuate as a result of seasonal fluctuation in business activities. It excludes specific project debt, as this may be structured on a case by case basis to best meet individual project requirements
Headroom limit Maximum permitted borrowings 1 less forecast peak borrowings
*The lesser of:
  • the borrowings cap as set by the ACT Treasurer and
  • the aggregate of the University’s borrowing facility limits
ISDA documentation International Swaps and Derivatives Association (ISDA) documentation detailing the hedging agreement between the University and the banking counterparty
University Act University of Canberra Act 1989 (ACT)
University Group The University of Canberra and all entities wholly owned by the University
UC Foundation Investment Policy UC Foundation: Endowment and Trust Funds published on the University of Canberra Policy Database